
The level or amount of funds available affects the investment decision. If an
investor has a small amount of free funds, certain types of investments are not accessible
to the investor. The more funds an investor has, the greater or wider is the choice of
investment available to the investor.
Another consideration pertaining to funds is the source of the available funds, whether the
free or available funds are provided out of income. If the potential investor can set aside
a fixed amount of current income which is surplus to his needs, then certain investments
like insurance policies, CTFs and the like can be considered.
3. Level of Risk Tolerance
The return on short-term government securities or bank deposits is almost certain
and hence, carries little or now risk. In contract, investment in shares produces very
uncertain results in the short term, as day-to-day fluctuations in the stock market can be
quite substantial. Generally, the higher the risk, the higher must be the potential return to
attract people into investing in it. This is what is termed the tolerance for the magnitude
and variability of the future return of loss. An investor’s level of risk averseness is very
much influenced by his age, investment objectives, financial condition, and personality.
What may be suitable investment for a millionaire who can afford to risk his capital on a
speculative venture will obviously not be appropriate for a young couple with children.
4. Investment Horizon
The time horizon can range from a few days (more speculation than investment)
to several years. A person’s investment horizon will depend on the investment objectives,
his age, and his current financial condition.
A match between the investment horizon and the maturity of an investment asset
is very important. For instance, keeping one’s money in a top-tier bank is considered one
of the safest investments. However, if the investment horizon is say, ten years, the choice
of investing in a bank deposit becomes a risky one as the investor will encounter
reinvestment risk from rolling his bank deposits and the risk of inflation eroding the real
value of the original sum of money.
5. Accessibility of Funds
With regards to the use of funds, accessibility of funds has three components:
First, if an individual requires the funds in a short period of time, he would not want
to lock the fund in an investment that goes beyond the time frame that the fund is needed.
Second, the cost or penalty of realizing the investment before its maturity period should
the fund be needed urgently. Third, the initial cost in setting up or buying into the
investment.
6. Taxation Treatment
Different types of investment vehicles enjoy (or suffer) a wide range of tax
treatment, which affects the taxation of the investment vehicle itself and the subsequent
taxation liability of the investor. An individual should, therefore, consider the different tax
treatments on different types of investment before deciding on what to invest.
7. Performance of the Investment
The performance of an investment depends on a country’s economic factors, the
competencies, and capability of the management team and the invested company’s level